Tax Composition and Growth: A Broad Cross-Country Perspective

October 25, 2012

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Santiago Acosta Ormaechea, and Jiae Yoo. Tax Composition and Growth: A Broad Cross-Country Perspective, (USA: International Monetary Fund, 2012) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We investigate the relation between changes in tax composition and long-run economic growth using a new dataset covering a broad cross-section of countries with different income levels. We specifically consider 69 countries with at least 20 years of observations on total tax revenue during the period 1970-2009—21 high-income, 23 middle-income and 25 low-income countries. To our knowledge this is the most comprehensive and up-to-date dataset on tax composition and growth. We find that increasing income taxes while reducing consumption and property taxes is associated with slower growth over the long run. We also find that: (1) among income taxes, social security contributions and personal income taxes have a stronger negative association with growth than corporate income taxes; (2) a shift from income taxes to property taxes has a strong positive association with growth; and (3) a reduction in income taxes while increasing value added and sales taxes is also associated with faster growth.

Subject: Consumption taxes, Income and capital gains taxes, Income tax systems, Property tax, Revenue administration, Taxes

Keywords: Caribbean, Coefficient estimate, Consumption taxes, Control variable, Fiscal policy, Growth, Income and capital gains taxes, Income tax systems, Income-tax share, Physical capital, Property tax, Regression equation, Structure variable, Tax composition, Tax revenue, Tax structure variable, Trade tax, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/257
Stock No:

WPIEA2012257
ISBN:

9781616355678
ISSN:

1018-5941

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